Diane, I really appreciate your detailed response. I will look at your suggestions in detail tonight, and may post back if I have follow up questions. I probably should have indicated in my original post the values involved. In this case the total cost of the improvement was about $263K. The grant paid $219K. The difference, or net cost, is $44K. The unadjusted basis of the building (an old barn) is not more than $100K, so the improvement exceeds both $10,000 and 2 percent, and thus would not appear to be eligible for the improvements election. Nor would it be eligible for the Section 179 deduction, as that deduction cannot be used for buildings. If I enter it as non-residential real estate (39 year recovery period), the regular depreciation expense associated with this deduction will be very small for 2021. If by contrast I enter it as 20 year farm building, which may be more appropriate, it looks like I can choose to write off the entire $263K using the special depreciation allowance. It is apparently not an option to utilize the special depreciation allowance in a partial manner, say by taking an allowance of $219K that would directly offset the grant amount, and depreciate in the ordinary fashion over 20 years the remaining asset basis of $44K.
